The move came after the chancellor was challenged in the House of Commons by a senior Tory MP who warned it would lead to key workers being left out of pocket for tests to show they are safe to work.
The potential charge emerged in new guidance from HM Revenue and Customs, which stated: “Coronavirus (Covid-19) testing kits or tests carried out by a third party which have been purchased by you to provide to your employees, are treated as a taxable benefit in kind on the employee.”
It was condemned by the Conservative chair of the House of Commons Treasury Committee, Mel Stride, who told Mr Sunak on Tuesday that it created a “perverse incentive” for key workers to avoid being tested in order to reduce their tax bill.
In a letter to Mr Stride, Mr Sunak later said he had ordered a new income tax and national insurance exemption for employer-provided Covid-19 antigen tests.
“This will be in effect for any tests which have taken place during the current tax year 2020-21,” wrote the chancellor.
“HMRC will amend their guidance as soon as possible to reflect this change.”
Mr Stride said: “It would not have been right to increase the tax bill for workers every time that they had a coronavirus test. I’m glad that common sense has prevailed. And I’m grateful that the chancellor has listened to the Treasury Committee and reversed this decision so swiftly.”
Mr Sunak said he believed that only a small number of employees would have been caught by the tax, as most workers are able to obtain tests for free through the NHS.
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